The Price of Success —How Amazon Devoured the World (And Your Royalties)

In 2007 Amazon released its first Kindle. The new eReader sold out immediately and spent months on back order. This was not cutting edge technology. Sony had beaten them to the punch with the Libre by at least two years. But Sony had also initially pinned their hopes to Borders, a bookstore who’d unwisely outsourced it’s online sales to none other than Amazon (among other costly mistakes).

Despite the touch and go economic times following the Great Recession, tablet computing and smart phones saw a number of advances. Data was boldly going where it’d previously only been seen on the bridge of the Enterprise. An entire library in your palm. What’s not to love?

For traditional publishers, plenty.

With entire industries reeling, the Big Five weren’t unaffected. But while they struggled to adapt, Amazon blazed a new trail with draconian efficiency. Along with the launch of the Kindle, Amazon opened up their Kindle Direct Publishing program ushering in the first official wave of digital self publishing and promising an eye-watering 70% royalties for each sale (initially 65% but later raised to match iBooks.)

As eBook markets grew in the shade of their dead tree counterparts, a full scale war erupted. The Big Five publishers were increasing overall revenues from eBooks as Amazon had promised, but also felt squeezed because Amazon insisted they sell eBooks at or below $9.99. They, along with Apple, launched efforts to slow Amazon‘s advance which eventually earned them a US Government fine for price fixing.

Unsuccessful in the head-on confrontation, trad pub switched to more subtle tactics. A spate of articles hit the news cycle between 2014 and 2015 proudly claiming the printed word wasn’t dying. These articles variously argued sales of traditionally published books were up or that younger generations preferred to read paper, all providing a hopeful outlook even while printing presses shut down across the country.

The figures used in these cheerful reports inevitably came from data aggregates such as Nielsen bookscan which could only report numbers directly from the paper industry they were attempting to prop up. Why? Because Amazon, the biggest retailer of digital books, refuses to share its sales data.

Last year, instead of reporting paper sales were up, reports surfaced “eBook sales” were down. And they were — but most affected were traditional publishers who’d lost considerable ground to indie and self publishers.

They were losing the war on all fronts. The Big Five’s final strategic withdrawal has largely been to steadfastly refuse to price eBooks in competition with self published and indie works and close ranks on their paper distribution. There are major problems with this approach.

More and more that paper distribution channel is narrowing. Barnes and Noble remains the lone, sizable survivor in the face of Amazon’s bleeding edge distribution networks, drones, and one-click instantaneous book delivery to tens of millions of Kindles. The brick and mortar retailer’s stock has cratered since 2015 and their market share continues to shrink. Further, paper is losing out to eBook sales, especially in genre fiction, and Amazon is more and more the place where all of those sales happen.

Who’s left for the online giant to devour? Are we at a market crisis yet? Not quite, but with the recent purchase of Whole Foods, grumblings about antitrust suits have once more surfaced. But the only crime Amazon has committed thus far is finding the cheapest, most efficient way to bring products to consumers.

At least this has been a boon for indies and self published authors. Right?

The early days of KDP produced a staggering amount of success stories. The numbers of overnight millionaires have dwindled, but examples of self published authors making more than their traditionally published counterparts still abound. Even nine years on, reading the recent data scraped from Amazon’s tailings seems to indicate indies are still on top of the world.

Author Earnings (a site which has developed their own methods for digging into that sales data Amazon refuses to share) continues to show indie and self-pub authors absorbing more and more of the eBook market. Alongside this, Big Five eBook sales as of May 2016 looked suspiciously like Barnes and Noble’s declining stock price. Indies were poised to overtake the gatekeepers.

Then October 2016 happened.

Author Earnings can’t quite put a finger on the exact reason why self published eBook sales dropped. Many possibilities were put forward including BookBub featuring more trad pub books or a tweak to Amazon’s unknowable algorithm. But another piece of tantalizing data has emerged in their latest report.

The indie drop in sales corresponds with what Author Earnings is calling a “ fascinating, and somewhat unsettling, trend” — the rise of Amazon’s own imprints.

If any company were to sell books then decide to get into the business of publishing books, it’s not too far-fetched to assume they’d put their own product proudly in the window displays. By the checkout counter. On the tables right when you walk inside the store. After all, they stand to make the most from those titles and selling them would become a priority. Maybe they’d tweak an algorithm after all.

Shortly after Indie sales stumbled, Amazon imprints ticked up.

Correlation certainly does not imply causation, but the coincidence is “unsettling”. Amazon imprints have continued their upward climb as per the latest February 2017 data from Author Earnings. Though Indie sales seemed to recover by the end of 2016. What if they’d found a way for self publishers to make up for this dip in performance? A way to compete in a closed system which gradually favored the online giant’s own imprints.

In early 2015 Amazon opened up their Amazon Marketing System to KDP publishers.

Adoption was slow. Results were mixed. But as more and more authors discovered the new marketing tool, word began to spread through the eager entrepreneurial community. By 2016, these ads began to take off, with respected industry giants reporting on their success and spreading the word. It was the perfect way to advertise — buying the equivalent of a spot at the checkout stand for the world’s largest retailer.

But this could be further seen as one small step in a larger trend where Amazon has begun to consolidate its unchallenged hold on the book market. Past simply outselling their competition, they’ve begun dictating terms to the authors themselves in order to drive their bottom line. Consider those once tantalizing 70% royalties offered by Amazon to self publishers.

Compared to trad pub royalties which might top 15% to 20% (perhaps as much as 35% for eBooks — remember this number), 70% is a veritable fortune. Even given trad pub’s reach, a self published author would have to sell exponentially fewer books to make the same amount and no longer would a fledgling author be unceremoniously consigned to oblivion if the sales numbers didn’t pan out right after release. That control, that flexibility, has allowed many authors to launch and nurture impressive careers while completely sidestepping the less patient gatekeepers.

But also consider that Amazon is slowly becoming the only book marketplace. They account for as much as 80% of eBook sales in the U.S with the figure approaching 70% worldwide. Because of this, the best way to enter this marketplace as a self publisher is to sign up to be Amazon exclusive and join Kindle Unlimited. There you can take advantage not only of the in-store promotions you gain access to but the Kindle page-read pot which can easily be enough to replace any income you might have gained from distribution outside Amazon — despite the fact these page-reads are paid at a fraction of the price you would typically set for a complete book.

Then don’t forget the discoverability treadmill created through AMS wherein the best way to be seen on this singular marketplace and remain competitive requires you to pay for prime placement in their store.

Where are those 70% royalties now?

Let’s say a hypothetical author sells 10 copies of their $2.99 book every day. (Let’s also establish this is well above average for the millions of books in Amazon’s collection.) At 70% royalty, that’s $2.09 per book. But dont’ forget the 8 cent delivery fee tacked on for selecting to earn a 70% royalty. Now we’re down to 2.01 per book, or 67%. So for those ten books, the author has earned a comfortable $20.10.

Next, the author gains another 10 full reads of their book from Kindle Unlimited users. They’ll receive roughly $1.50 for a 300 page book. That’s another $15.00.

But we’re now at $35.10 for 20 books or the equivalent of a 59% royalty for a book being sold at $2.99.

For five of those sales, the author used AMS. With a particularly good ad created in their system, they’ve earned an amazing 200 percent return on their investment! They’ve spent $7.50 to make 5 sales at the full $2.99 price…or…well 67% of the full price. So not quite double the investment, but a nice return on an advertisement (don’t mind the dollars thrown into that mysteriously enigmatic machine to test and re-test keywords, copy, and the like in order to produce said good ad).

It could be argued any author or publisher needs to pay for advertising in order to land those extra sales (but not all inside the monolithic space managed by these mysterious algorithms of a presumably benevolent seller/competitor). It could also be argued those page reads from Kindle Unlimited subscribers never would have bought your book to begin with —$2.99 is too rich for some people’s blood (but ask yourself at what point $2.99 became too much to pay for a book or who controls how much Kindle Unlimited readers pay to read said book…)

However you look at it, our hypothetical author has walked away from Amazon with $27.60 from the sale of 20 books which retail for $59.80. That’s 49% to you, 51% to Amazon.

What happens when Amazon is the only place left selling books? The only place of any consequence for a supposedly “self” publisher to publish and hock their wares?

Look for those actual royalties to continue their decline. Maybe to say around 35%. That is, if you’ve signed with one of their imprints…

(Note: In the comments section of Author Earnings’ latest February 2017 report, Data Guy breaks down the KU page reads and indicates, on average, those authors exclusive to Amazon and enrolled in KU are making slightly more per sale on page reads than they do from overall full price sales. Those returns are still depressed from a typical amount an author might expect from a full price sale and further indicate a sales market kept below the minimum $2.99 threshold to earn 70% royalties outside of KU. Numbers are as follows: $1.94 earnings for a KU read. $1.69 for sales earnings. For Authors distributing wide and non-exclusive, the average earnings per sale on Amazon is $2.20, which is only slightly above the minimum $2.99 threshold.)

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